Non-reimbursable expenses: what they are, types, and how to manage them

Managing company expenses can be a real headache, especially when figuring out which expenses are reimbursable and which aren't. You know how crucial it is to get this right—not just for keeping your budget in check, but also to avoid any nasty surprises during audits. Clear guidelines mean fewer questions from employees, saving everyone time and hassle.
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Let's dive into the nitty-gritty of non-reimbursable expenses. By the end of this section, you'll have a solid understanding of what falls into this category and why, making your job a whole lot easier.

What are non-reimbursable expenses?

Non-reimbursable expenses refer to costs that an employer will not compensate. These expenses fall outside the predefined guidelines or policies set by the organization. They are explicitly stated as not covered by the company, ensuring that employees know what they cannot claim for reimbursement.
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Understanding these categories helps in managing company finances effectively and ensures that all expenses align with the organization's policies. For a deeper understanding of reimbursable and non-reimbursable business expenses, check out this comprehensive guide.

Common types of non-reimbursable expenses

Personal expenses

Personal expenses are costs that benefit the employee or employee’s family rather than the business. These expenses are not eligible for reimbursement.

• Childcare: Costs for babysitters, daycare, or any form of childcare during business trips or work hours.
• Spouse/dependent travel: Expenses related to the travel of employee’s spouse or dependents, even if they accompany the employee on a business trip.
• Personal electronic accessories: Items like headphones, smartwatches, or any gadgets not required for the job.
• Optional hotel amenities: Charges for in-room movies, minibar snacks, or other optional services provided by hotels.
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Travel expenses

Travel expenses can quickly add up, but not all are reimbursable. Only business-related travel costs qualify. 

• Airline seat upgrades without approval: Upgrading to business or first class without prior approval from the employer.
• Mini-bar charges: Consuming items from the hotel room's mini-bar, which are considered personal indulgences.
• Personal amusement or side trips: Costs for activities or trips taken for personal enjoyment during business travel.
• Traffic violation fines: Fines for parking tickets, speeding, or any other traffic violations incurred while on a business trip.
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Meal and entertainment expenses

Meal and entertainment expenses must have a clear business purpose to qualify for reimbursement. 

• Alcohol (in most cases): Alcoholic beverages are generally not reimbursable unless specifically allowed under certain circumstances.
• Meals for personal convenience: Meals that are not part of a business meeting or event, taken for personal convenience.
• Entertainment without clear business purpose: Costs for entertainment activities that do not directly relate to business objectives.

Other non-reimbursable costs

• Continuing education credits: Tuition or fees for courses taken for professional development or job-related education.
• Professional license fees: Fees for obtaining or renewing professional licenses or certifications.
• Personal services (dry cleaning, haircuts): Costs for personal grooming or services, even if incurred during business travel.
• Political or charitable contributions: Donations to political campaigns or charitable organizations, regardless of the cause.

How to identify non-reimbursable expenses

Start by thoroughly reading your company's travel and expense policy. This document outlines what expenses qualify for reimbursement and which do not. Pay close attention to sections that list non-reimbursable items. These sections often include specific examples and categories, making it easier to identify what you should not claim.
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When in doubt, both the employer and employee should consult with the finance or HR department. They can provide clarity on expenses that fall into a gray area. Seeking guidance ensures the employee doesn’t submit non-reimbursable expenses, which can save you from potential issues later. 
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Distinguish between personal and business-related costs. If it benefits the employee personally rather than the company, it likely falls into the non-reimbursable category. This distinction helps maintain transparency and accuracy in expense claims. For more insights, check out this expense reimbursement policy.
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For employees, it’s best to use common sense and good judgment when evaluating expenses. They should consider if the expense aligns with the company's culture and values. If an expense seems questionable, err on the side of caution. 

Consequences of claiming non-reimbursable expenses

Claiming non-reimbursable expenses can have significant tax implications for employees and employers. Here are the key consequences to consider:

Tax implications for employees

• Increased tax liability: If an employee incurs expenses that are not reimbursed by their employer, they may find themselves facing a higher tax liability. Under a non-accountable reimbursement plan, any reimbursements are treated as taxable income, which can push employees into a higher tax bracket and increase their overall federal and state tax obligations.
• Limited deductibility options: The Tax Cuts and Jobs Act of 2017 suspended the miscellaneous itemized deduction for unreimbursed employee expenses, meaning that most employees cannot deduct these expenses on their tax returns from 2018 to 2025. This restriction limits the ability of employees to recover costs incurred in the course of their employment.
• Potential for fraudulent claims: Without clear guidelines and controls in place, there is a risk of fraudulent expense claims. Studies suggest that nearly 25% of employees may commit expense fraud, which can lead to serious financial consequences for both the employee and employer if discovered.
• Documentation requirements: Employees must maintain adequate documentation to substantiate their claims. If they fail to provide proper receipts or justification for expenses, they may lose the right to deduct those expenses when filing taxes.

Consequences for employers

• Tax deduction loss: If an employer reimburses ineligible expenses or fails to properly document reimbursements, they risk losing the ability to deduct those expenses on their corporate tax returns. This could result in increased taxable income for the business.
• Compliance risks: Employers must ensure that their reimbursement policies comply with IRS regulations regarding accountable and non-accountable plans. Misclassification of expense reimbursements can lead to penalties and increased scrutiny from tax authorities.
• Employee relations issues: If employees feel that their legitimate expenses are not being reimbursed or recognized, it can lead to dissatisfaction and decreased morale within the workforce. Clear communication about reimbursement policies is essential to maintaining trust and transparency.
• Impact on payroll taxes: Reimbursements under a non-accountable plan are subject to payroll taxes, which increases the employer's tax burden as well as that of the employee. This can affect overall compensation strategies and budgeting for employee expenses.

How can Ramp help with non-reimbursable expenses?

With customizable expense policies, real-time expense tracking, streamlined approval workflows, and detailed reporting, Ramp simplifies the entire process. Our advanced tools flag potential non-reimbursable items, making it easier for you to maintain compliance and avoid mistakes.
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With our customizable expense policies, real-time tracking, streamlined approval workflows, and detailed reporting, you can ensure compliance and optimize your financial operations.
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Join over 25,000 businesses that trust Ramp to simplify their expense management. Discover how our advanced finance operations software can save you time and money. Visit Ramp to learn more and get started today.